FTSE closes at highest since 2008

World markets continued to shrug off economic worries as London's FTSE 100 Index closed at its highest level since January 2008.

The bullish sentiment on equity markets around the world helped Wall Street's Dow Jones Industrial Average reach all-time highs and pass its previous pre-banking crisis high of 14,164 on October 9, 2007.

The rally comes amid signs of a return to confidence in the US economy after a run of better-than-expected data put concerns about an 85 billion US dollar (£56 billion) package of automatic spending cuts - known as the sequesters - in the shade.

The highs across the Atlantic helped London's FTSE 100 Index close up 86.3 at 6432.

Joe Rundle, head of trading at ETX Capital, said: "It feels as if investors are of the view that a 15 trillion US dollar (£10 trillion) economy can withstand 85 billion US dollars worth of spending cuts."

He said that although the US economy would slow due to the budget cuts, it was unlikely to contract or dip into recession. He also pointed out that the US Federal Reserve was buying 85 billion US dollars in its bond programme - known as QE3.

Vice chairman of the US Federal Reserve Janet Yellen said on Monday that the central bank should press on with its 85 billion US dollars a month quantitative easing programme.

Kathleen Brooks, research director at Forex, said the catalyst for the "next leg higher" could be more accommodative action from central banks. She said that it appeared unlikely the Fed would end QE3 any time soon and that "we could still be in the sweet spot for stocks as long as the printing presses keep on turning".

The new highs came as figures showed US service companies grew in February at the fastest pace in a year, buoyed by higher sales and more new orders and recent figures which show recovery in the housing market and growing consumer confidence.

But James Hughes, chief market analyst at Alpari, warned the positive feeling and strong move in the stock markets did not mean that economic woes for the global economy or the US were over. He said: "With unemployment still stubbornly high and countries such as the US and UK still reeling from recent ratings downgrades, it is safe to say that there is still a long way to go before we can say that the financial world is back on track."